European stocks slide, but this week is the big one. The TPP weekend update

European Stocks slide.

London markets closed with mixed results on Friday ending the week in the red as caution weighed on investor sentiment, driven by concerns over weakening consumer confidence and the forthcoming Budget.

The FTSE 100 index edged down 0.25% to end at 8,248.84 points, while the FTSE 250 managed a slight gain, rising 0.14% to 20,819.91 points. However, both indices were down on the week -1.31% and -1.56% respectively and continued to drop in after-hours trading.

In currency markets, sterling was flat against the dollar at $1.2975 but saw a modest increase of 0.18% against the euro, trading at €1.2006.

On the economic front, UK consumer confidence saw a slight dip in October, with GfK's consumer confidence index slipping one point to -21, underscoring a mixed economic outlook.

While the perception of personal finances and major purchases showed modest improvement, broader economic concerns continued to weigh on sentiment.

The indicator tracking personal finances over the past year fell by one point to -10, though this marked a notable improvement from last year.

Looking ahead, consumers seemed cautiously optimistic, with the index for personal finances over the next year rising one point to -2, six points higher than in October 2023.

However, concerns about the wider economic landscape persisted, as the index for the general economic situation over the past year dropped five points to -42, although still 12 points better than a year ago.

Expectations for the economy in the coming year also softened, dipping one point to -28, slightly above last year’s level.

Despite those concerns, willingness to make major purchases showed resilience, rising two points to -21, a 13-point increase year-on-year.

Additionally, the savings index climbed four points to +27, reflecting stronger sentiment towards saving compared to last October.

“Consumer confidence fell one point this month to -21, taking the score back down to the level last seen in March this year,” said GfK consumer insights director Neil Bellamy. “Also falling one point are both personal financial situation over the last 12 months and general economic situation over the next 12 months.

An early estimate from S&P Global pegged composite PMI at an 11-month low of 51.7 in October, compared with the 52.6 recorded in September, as new order growth slowed. However, anything above 50 is still growth and the UK economy still seems to be firing. Meanwhile, a survey conducted by market research firm GfK showed that UK consumer confidence in October fell to its lowest level this year, suggesting that consumers may be anxious about the potential for tax increases.

In short, all the figures are looking good, but fears over what we might see in this week’s budget have shaken confidence. In our opinion, expectations are so bad as to what the government might do, there is actually a chance of a positive outcome.

Europe

The STOXX Europe 600 Index ended 1.18% lower on expectations that the Federal Reserve may ease monetary policy more slowly. Major European stock indexes also fell with Italy’s FTSE MIB losing 1.22%, France’s CAC 40 Index ending 1.52% lower, and Germany’s DAX declining 0.99%.

Business activity in the euro area remained in contractionary territory in October, as new orders continued to dwindle, S&P Global said. An early estimate of the composite Purchasing Managers’ Index (PMI), which combines activity in the manufacturing and services sectors, registered 49.7 in October, compared with 49.6 in September. (PMI readings less than 50 indicate a contraction.) France and Germany, the two largest economies, were the main sources of weakness.

A number of European Central Bank (ECB) policymakers—including former hawks—raised the possibility of more policy easing this year, although they seemed to be divided over the pace of rate cuts. Speaking at the annual meetings of the International Monetary Fund (IMF) and World Bank, ECB President Christine Lagarde and Germany’s Joachim Nagel advocated for a cautious approach. However, central bankers from France, Portugal, and Finland warned that the ECB could fall behind the curve, as weakening economic growth raised the risk of undershooting the 2% inflation target.

US

The broad market S&P 500 Index finished lower after posting gains in each of the six previous weeks. Equities seemed to take cues from the US Treasury market where futures market pricing now reflects a shallower Fed rate-cutting cycle.

Large-cap stocks held up better than small-caps, and growth stocks outperformed value as the tech-heavy Nasdaq Composite Index was one of the few markets to gain this week.

Tesla was the best performer in the S&P 500 and led the Magnificent Seven, helping to keep the broad index from a steeper decline. The electric vehicle manufacturer posted unexpectedly strong quarterly earnings and projected 20% to 30% vehicle sales growth in 2025. The quarterly results and bright outlook drove the stock to its best daily gain (22%) in more than 11 years on Thursday.

The cause for the gain still seems to be Elon Musk’s optimistic outlook which he reiterates every earnings release. The good news was that deliveries rose for the first time this year but this came at a cost the market seems to be ignoring. Average selling prices continued to trend lower, coming in at under $40,700 for Q3, down almost $1,000 compared to the previous quarter as price cuts, weaker product mix for the mainstream S, X, Y and 3 models, as well as highly discounted financing options.

Also, a bulk of Tesla's earnings lift came from the sales of about $739 million in automotive regulatory credits. As an EV manufacturer, Tesla earns regulatory credits that it can sell to traditional automotive manufacturers who are unable to meet government-mandated zero-emission vehicle sales targets. These credit sales, which we estimate are almost pure profit, are likely to have been a key driver of margins for the quarter. Gross margins for automotive sales stood at 16.4%, up from 15.7% a year ago.

On the other hand, Apple pushed the broad market in the other direction. Prominent Wall Street analysts downgraded their calls on the stock amid lower projections for sales of the new iPhone 16. While Apple traded flat on Friday it was down -1.38% on the week. This is not too concerning although it does mean that the fight for the world’s most valuable company is back on between Apple and Nvidia.

Apple has a current quarterly revenue of $84.38 billion while Nvidia’s is $30.04 billion but the net incomes are $21.45 billion and $16.6 billion respectively. These two tech giants are very different with the net profit margin of Nvidia being double that of Apple. Can it continue? Only time will tell.

In contrast to this, and to put it into perspective, Tesla's net income was $2.17 billion but is still America’s 8^th most valuable company, and worth more than the 10 largest car manufacturers in the world combined (Tesla is 11^th in earnings).

Over the last 12 months, Volkswagen has earned over 3 times more in revenue than Tesla, yet the market cap of Tesla is 1,707% greater. Elon Musk’s words might create a magic aura for some out there in the investment world, but this is not a ship we would want to be on.

Asia

Japan’s stock markets lost ground over the week, with the Nikkei 225 Index falling 2.74% and the broader TOPIX Index down 2.63%, amid uncertainty about the outcome of the country’s general election on Sunday, October 27.

Given investor caution ahead of Japan’s election, the yen weakened to the high end of the JPY 151 range against the USD, from around 149.5 at the end of the previous week. The yen also faced pressure from a rallying dollar as investors converged around the view that the Federal Reserve was less likely to cut interest rates aggressively.

With some signs of easing inflationary pressure adding to uncertainty about the outlook for the Bank of Japan’s monetary policy normalization, the yield on the 10-year Japanese government bond fell to 0.95%, from the prior week’s 0.97%. The Tokyo-area core consumer price index (CPI) rose 1.8% year on year in October, slightly above consensus but slowing from September’s 2.0% level. The slowdown largely reflected the reinstatement of electricity and gas subsidies.

Chinese equities rose as the central bank implemented more stimulus measures to shore up the economy. The Shanghai Composite Index advanced 1.17%, while the blue-chip CSI 300 added 0.79%. In Hong Kong, the benchmark Hang Seng Index declined 1.03.

The People’s Bank of China (PBOC) injected RMB 700 billion into the banking system via its medium-term lending facility and left the lending rate unchanged at 2%, as expected. With RMB 789 billion in loans set to expire next month, the operation resulted in a net withdrawal of RMB 89 billion from the banking system for October. The central bank last reduced the rate on the MTLF, a one-year policy loan, by a record 30 basis points on September 25.

The Week Ahead

Macroeconomic headlines are set to be dominated by US gross domestic product and payroll figures next week, while the UK’s Autumn Budget will also be in focus.

Chancellor Rachel Reeves will deliver the Budget on Wednesday, with a string of tax hikes expected alongside commitments to boost public spending. Goldman analysts noted these could equate to an additional £25 billion in taxes and £30 billion for investment, with eyes also set to be on economic forecasts on the back of changes to UK fiscal rules.

Across the Atlantic, preliminary gross domestic product figures are also due on Wednesday for the third quarter, which analysts say should mirror the 3% seen over the previous period. This will bolster hopes of a soft landing and suggest that the Federal Reserve may take a gradual approach to easing monetary policy.

Non-farm payroll figures will then add further clarity around the health of the US economy on Friday, alongside unemployment data.

Anticipations are for 140,000 new jobs to have been added to the economy in October, against an expectation-beating 254,000 last time out, with unemployment remaining at 4.1%.

Elsewhere, inflation and gross domestic product figures will also feature from Europe next week, alongside data on house prices and consumer credit back in the UK.

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Five of the “Magnificent Seven” report earnings next week, with Alphabet (Google), Meta and Amazon poised for double-digit earnings growth fuelled by ad spending. Apple could get a fillip from Chinese sales of its latest iPhones, while Microsoft may use its earnings call to address concerns that it’s lagging rivals in artificial intelligence.

“These reports will likely be critical in shaping how investors view the overall earnings season,” said Anthony Saglimbene at Ameriprise. “As long as fundamental conditions remain firm, the bull market should continue to ride the near-term ups and downs in sentiment.”

“Overall, we expect big tech earnings next week will display a mix of steady operational performance, AI-led revenue acceleration, and resilient advertising that signals ongoing health and innovation,” said Ido Caspi at Global X. “More so, we expect to see further evidence of generative AI moving along its growth curve and continued shift from experimentation to widespread monetization.”

On a geopolitical note, over the weekend we finally saw Israel’s retaliation strike on Iran. Coordinated with Washington and limited to missile and air defence sites, it was more restrained than many expected and may help diplomatic efforts to return hostages and limit the combat in both Lebanon and Gaza.

Israel held off until US Secretary of State Antony Blinken returned to Washington from four days of consultations with Israeli and Arab allies.

In a set of sorties under cover of darkness, and likely over hostile territories including Syria and Iraq, dozens of Israeli warplanes flew thousands of kilometres. Refuelling in midair, they targeted military sites in three provinces in retaliation for Iran’s firing of ballistic missiles at Israel on Oct. 1.

It avoided oil, nuclear and civilian infrastructure sites, in keeping with a request from the administration of US President Joe Biden, which is leading attempts to find solutions to the crises set off by the brutal attack on Israel a year ago from Iran’s proxy in Gaza, Hamas. Defence Minister Yoav Gallant said he was in close touch with US Defence Secretary Lloyd Austin throughout.

Israel’s restraint on Saturday allowed Iran to dismiss it as ineffective, possibly setting the stage for a restrained response or no response at all.

Iran’s First Vice President Mohammad Reza Aref, posted on his X account, “Iran’s power has humiliated the enemies of the motherland,” while state TV interviewed children going to school and people exercising. The official Tasnim news agency spoke only of “reserving the right to respond.”

Hopefully this is the start of de-escalation although there is certainly no end in sight to the overall tensions in the Middle East.

Enjoy the rest of your weekend and good luck in the markets this week.

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